Loan Violation if LOC $350,000 for Director?

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Question:

If a director has a line of credit in his business with a partner of $400,000 and other loans totalling 100,000 (not his mortgage) would he be in violation if he wanted another loan? The credit line is not fully used but it is up to $350,000 used.

Answer:

Unless you are referring to some sort of loan limit to directors governed under State law, the loan limit to any one specific director would be the same as your loan limit to any one borrower. If the aggregate credit extensions to the director and related interests exceeds $500,000 or 5% of capital, then any new or renewed loans would need to be preapproved by the majority of the board of directors. For lines of credit, you treat the commitment amount as the loan amount regardless of the current balance of the line. Lines of credit will also need approval of the board at least every 14 months once the director exceeds the preapproval limitations.

First published on BankersOnline.com 6/17/13